Question

SUBJECT : Accounting and Finance

Question 1 Financial accounting and management accounting have different uses to the stakeholders. Differentiate the broad types of accounting information between both disciplines.

Question 2 The global COVID-19 pandemic have resulted in many companies contemplating to shut down or close permanently their operations. Discuss the decisions that must be considered by management before taking such a move.

Answer 1

Question 1

Firstly, we must know the difference between both the accountings.

Basis	Financial Accounting	Management Accounting
Details	In this we can get all the detailed information about an entire business.	But in management accounting, works and tells about a detailed level of a company and not the entire business, like profits generated by a product, customers according to different regions, etc.
Efficiency and Effectiveness	Financial accounting can show a stakeholder how efficient a company is as it tells about the profitability of a company.	Management accounting on the other hand tells about what problems a business is facing and what are the solutions to them.
Information provided	Information in financial accounting must be accurate that means financial statements must be accurate and no error should be there.	In management accounting, information provided by it is usually on the basis of estimates. So, it is not guaranteed it will be fully correct.
Reporting Focus of accountings	Financial accounting focuses on making or reporting financial statements. And these statements are accessible to all the people inside as well as outside.	Management accounting focuses on making operational reports and these reports are accessible to stakeholders inside the business only.
Standards to use or not	All the reports generated in financial accounting must be according to Accounting Standards.	In management accounting, there is no need to work according to the accounting standards only.
Time Period for which both are prepared	Financial accounting generates reports for the time period that already went or we can say for the previous year.	But management accounting prepares reports for the future purposes like budget forecasts.
Time of Making	It is prepared at the end of an accounting year only.	It is prepared in the current ongoing accounting year.

Now, we can discuss about types of accounting information from both disciplines:

1. Financial Accounting - This accounting tells about one category of accounting information that is financial position and financial performance of the company. This means that financial accounting helps stakeholders in knowing about the financial position of the company as well as the financial performance of the company. This is because various reports that are generated in financial accounting helps one to know how the business is running, this means that is the business earning profits or losses. If business is doing good then stakeholders like employees, shareholders, etc. will be benefited. And at the same time it also tells about the financial position, that is is the business running on more debts or more assets. This can be identified using balance sheet of a company. And if a business is running more on debt then it means that it is risky to invest in that business but if one is running majorly on assets the one will love to invest in that if it has good performance too.

2. Management Accounting - This accounting tells about another category of accounting Information that is planning and control of business. This means that management accounting helps the stakeholders to know that what is the plan or future aspects of the business or company and how the company is capable of controlling its business factors. Further, in planning and control of business management accounting will take help of financial accounting only, so if those are not correct, management accounting will not be able to take accurate decisions. For planning management accounting department can use various ratios like credit turnover ratio to determine the rate at which creditors are paid and so on. And for controlling the business budgets are prepared for the business and the activities are matched and compared to the budget and deviations at the end are managed.